NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2007 and 2006
1.
Summary of Significant Accounting Policies
Description
of Business
- Texhoma Energy, Inc. was originally incorporated as Pacific
Sports Enterprises, Inc. in 1998. Texhoma is engaged in the
exploration for and the production of hydrocarbons, more commonly known as
the
exploration and production of crude oil and natural gas. In March
2006, Texhoma incorporated a subsidiary, Texaurus Energy, Inc. in Delaware
for
the same purpose.
Organization
and Basis of Presentation
– Texhoma’s securities are registered with the
Securities and Exchange Commission in the United States of America and its
securities currently trade under the symbol “TXHE.PK” on the pink
sheets.
The
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America.
Use
of Estimates
– Texhoma’s financial statement preparation requires that
management make estimates and assumptions which affect the reporting of assets
and liabilities and the related disclosure of contingent assets and liabilities
in order to report these financial statements in conformity with accounting
principles generally accepted in the United States of America. Actual
results could differ from those estimates.
The
primary estimates made by management included in these financial statements
are
the impairment reserves applied to various long-lived assets and the fair value
of its stock tendered in various non-monetary transactions.
Cash
and Cash Equivalents -
Cash includes all highly liquid investments that are
readily convertible to known amounts of cash and have original maturities of
three months or less.
Restricted
Cash –
Texaurus maintains the residual cash from the proceeds of the Laurus
Fund note in a restricted account for as long as Texaurus shall have any
obligations to Laurus. Texaurus may request authorization from Laurus
for access to these funds for the consummation of acquisitions of oil and gas
assets.
Fair
Value of Financial Instruments -
SFAS No. 107,
Disclosures about Fair
Values of Financial Instruments
(FAS 107), requires disclosing fair values
to the extent practicable for financial instruments, which are recognized or
unrecognized in the balance sheet. For certain financial instruments, including
cash, accounts payable, and accrued expenses and short term debt, it was assumed
that the carrying value does not materially differ from fair
value. The fair value of debt was determined based upon current rates
at which Texhoma could borrow funds with similar maturities
remaining.
Property
and Equipment-
Property and equipment are recorded at cost less impairment.
Depreciation is computed using the straight-line basis over the estimated useful
lives of the assets at the rates in the accompanying table.
Asset
Category
|
Depreciation/
Amortization
Period
|
|
|
Building
|
30
Years
|
Plant
& Equipment
|
7
Years
|
Production
Tooling
|
$10
per unit
|
Automotive
Equipment
|
5
Years
|
Office
Equipment
|
5
to 3 Years
|
Texhoma’s
subsidiary purchased oil and gas property interests on March 28, 2006 with
ownership of their portion of the oil and gas production from the Barnes Creek
and Edgerly properties becoming effective January 1, 2006. Little
White Lakes was purchased effective April 1, 2006. Depletion is
computed based upon the estimated remaining proved reserves as determined by
a
third party petroleum and geology consulting firm. Based upon those
estimations, the total proven reserves for the leaseholds were as
follows:
Field
|
Total
Proven Reserves
|
Remaining
at September 30, 2007
|
Depletion
rate for September 30, 2007
|
Depletion
rate for September 30, 2006
|
|
|
|
|
|
Barnes
Creek
|
73,310
|
51,450
|
16.2%
|
14.9%
|
|
|
|
|
|
Edgerly
|
210,574
|
51,273
|
15.9%
|
4.9%
|
|
|
|
|
|
Little
White Lakes
|
27,673
|
10,159
|
50.5%
|
20.8%
|
Oil
and Natural Gas Exploration and Development –
Texhoma records its
exploration operations in accordance with SFAS 19,
Financial Accounting and
Reporting by Oil and Gas Producing Companies
(FAS 19). Exploration involves
identifying areas that may warrant inspection and/or examination of specific
areas that indicate they may possess the presence of oil and gas reserves,
including the drilling of exploration wells and collecting seismic
data.
Texhoma
adopted “Successful Efforts” accounting for exploration costs as defined in FAS
19. Under this method, geological and geophysical costs, the costs of
carrying and retaining undeveloped properties such as delay rentals, ad valorem
taxes on properties, legal costs for the title defense, maintenance of land
and
lease records, and dry and bottom hole contributions are charged to expense
as
incurred. The cost of drilling exploratory wells is capitalized,
pending determination of whether the well can produce
hydrocarbons. If it is determined the well has no commercial
potential, the capitalized costs, net of any salvage value are
expensed.
Should
it
be determined subsequent to a financial reporting period and prior to the
issuance of financial statements for that reporting period, that an exploratory
well has not found commercially exploitable hydrocarbons, any costs incurred
through the end of that reporting period, net of salvage value, must be written
off in that prior period under FASB Interpretation No. 36,
Accounting for
Exploratory Wells in Progress at the End of the Period
(FAS
36).
Equity
Method of Accounting for Investments in Common Stock -
The equity method of
accounting for investments in Common Stock when the ownership is 50 percent
or
less of the voting stock of the enterprise is governed by APB Opinion No. 18,
The Equity Method of Accounting for Investments in Common Stock
(APB
18). It states that use of the equity method of accounting for an
investment is required if the investor exercises significant influence over
the
operating and financial policies of the investee. APB 18 includes
presumptions, based on the investor’s percentage of ownership, as to whether the
investor has that ability.
Long-Lived
Assets
- The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of long-lived assets, including property,
equipment and purchased intangible assets with finite lives, is to review the
carrying value of the assets if the facts and circumstances suggest that they
may be impaired. If this review indicates that the carrying value will not
be
recoverable, as determined based on the projected undiscounted future cash
flows, the carrying value is reduced to its estimated fair value.
Income
Taxes
- Management evaluates the probability of the realization of its
deferred income tax assets. The Company has estimated a $3,273,000
deferred income tax asset at September 30, 2007 relating to net operating loss
carryforwards and deductible temporary differences. Of that amount,
an estimated $2,836,000 is related to the net operating loss
generated for the year ended September 30,
2007. Management determined that because the Company has not yet
generated taxable income, because of the changes in control that have occurred
and the fact that certain losses were generated outside of the United States,
it
is more likely than not that a tax benefit will not be realized from these
operating loss carryforwards and deductible temporary
differences. Accordingly, the deferred income tax asset
is offset by a full valuation allowance.
If
the
Company begins to generate taxable income, management may determine that some,
or all of the deferred income tax asset may be
recognized. Recognition of the asset could increase after tax income
in the future. The net operating tax loss carry forward of
approximately $8,340,000 expires from 2011 to 2026. The future
utilization of the net operating losses is uncertain.
Earnings
or (Loss) Per Share
- Per SFAS No. 128,
Earnings per Share
(FAS
128), earnings per share (or loss per share), is computed by dividing the
earnings (loss) for the period by the weighted average number of common stock
shares outstanding for the period. Diluted earnings (loss) per share
reflects the potential dilution of securities by including other potential
common stock, including stock options and warrants, in the weighted average
number of common shares outstanding for the period, if
dilutive. Therefore because including options and warrants issued
would have an anti-dilutive effect on the loss per share, only the weighted
average (loss) per share is reported.
Share-Based
Payment
- In December 2004, the FASB issued SFAS No. 123R,
Accounting for Stock-Based Compensation
(FAS 123(R)), which supersedes
APB 25. Accordingly, Texhoma is required to measure all stock-based
compensation awards using a fair value method and recognize such expense in
its
financial statements as services are performed. In addition, the adoption of
FAS
No. 123(R) will require additional accounting related to the income tax effects
and additional disclosure regarding the cash flow effects resulting from
share-based payment arrangements. FAS No. 123(R) became effective for small
business issuers as of the first interim or annual reporting period that begins
after December 31, 2005.
The
effects of the adoption of FAS No. 123(R) on Texhoma’s results of operations and
financial position are dependent upon a number of factors, including the number
of employee stock options outstanding and unvested, the number of stock-based
awards which may be granted in the future, the life and vesting features of
stock-based awards which may be granted in the future, the future market value
and volatility of Texhoma’s stock, movements in the risk free rate of interest,
award exercise and forfeiture patterns, and the valuation model used to estimate
the fair value of each award. In addition, Texhoma utilizes
restricted stock units as a key component of its ongoing employee stock-based
compensation plan. These awards generally are recognized at their fair value,
equal to the quoted market price of Texhoma’s common stock on the date of
issuance, and this amount is amortized over the vesting period of the shares
of
restricted stock held by the grantee
Accounting
Changes and Error
Corrections - In May 2005, the FASB issued SFAS
No. 154
, Accounting Changes and Error Corrections
(FAS
154)
.
This statement replaces APB Opinion No. 20,
Accounting Changes
, and SFAS No. 3,
Reporting Accounting
Changes in Interim Financial Statements,
and changes the requirements for
the accounting and reporting of a change in accounting principle. This statement
applies to all voluntary changes in accounting principles. It also applies
to
changes required by an accounting pronouncement in the unusual instance that
the
pronouncement does not include specific transition provisions. When a
pronouncement includes specific transition provisions, those provisions should
be followed. FAS 154 requires retrospective application to prior periods’
financial statements of voluntary changes in accounting principles. FAS 154
is effective for accounting changes and corrections of errors made during 2007,
beginning on January 1, 2007. Texhoma does not believe the adoption of FAS
154
has had a material impact on its financial statements.
Inventory
Cost
- In November 2004, the FASB issued SFAS No. 151
,
Inventory Costs—an Amendment of ARB No. 43, Chapter 4
(FAS
151)
.
FAS 151 amends Accounting Research Bulletin (“ARB”) No. 43,
Chapter 4, to clarify that abnormal amounts of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should be
recognized as current-period charges. In addition, this statement requires
that
allocation of fixed production overheads to the costs of conversion be based
on
the normal capacity of the production facilities. The provisions of this
statement are effective for inventory costs incurred beginning in Texhoma’s
first quarter of 2006. Texhoma does not believe that the adoption of FAS 151
did
not have a material impact on its financial statements.
2. PROPERTY
AND EQUIPMENT
No
acquisitions of oil and gas properties were made during the year ended September
30, 2007.
Texhoma and
its subsidiary, Texaurus Energy, Inc. acquired oil and gas leasehold properties
at a cost of $11.191 million during the year ended September 30,
2006. During the year $916,000 of those acquisitions proved to be
unsuccessful, and were written off for the financial statement
presentation. In addition, third
party
engineering reports projected that the future value of the Little White Lake
interest retained significantly less future value than was reflected in the
depleted amount per the balance sheet at September 30, 2006 and as such recorded
an impairment of $2,682,000 for the year then ended.
3. SHARE
CAPITAL
Stock
for Services Compensation Plan
- In accordance with Texhoma’s Stock for
Services Compensation Plan, on August 26, 2004, the Company filed a registration
statement on Form S-8 with the Securities and Exchange Commission, for
registration under the Securities Act of 1933 of Securities to Be Offered to
Employees Pursuant to Employee Benefit Plans to register the shares of common
stock under Texhoma’s Plan in an amount of up to 11,000,000 pre
forward split shares and 44,000,000 post forward split shares at various
exercise prices. The Board of Directors is authorized, without
further approval; to issue shares of common stock under the plan from time
to
time of up to an aggregate of 44,000,000 post forward split shares of the
Company’s common stock.
Common
Stock
– In May 2007, 4,800,000 shares of our common stock were subscribed
for at $0.0125 per share for a total consideration of $60,000.
In
May 2007, Valeska Energy Corp.
entered into a management agreement with Texhoma for a minimum period of three
months. Mr. William M. Simmons is the President of
Valeska. In exchange for these services, Valeska was issued
15,200,000 shares of Texhoma’s stock as payment and retainer. On June
8, 2007, Capersia transferred 1,000,000 shares of Texhoma stock to Mr. William
Simmons, 1,000,000 shares to Valeska Energy Corp., and 1,000,000 shares to
Asset
Solutions (Hong Kong) Ltd.
In
June
2007, 18,000,000 shares of our common stock were purchased at $0.0125 per share
by Hobart Global Ltd., a British Virgin Islands corporation in exchange for
$225,000.
In
July
2007, additional shares of common stock were sold to Camecc A/S, a Norwegian
company for $12,500 or $0.0125 per share and another 500,000 shares were issued
to Mr. Ibrahim Nafi Onat in consideration for his entry into a Consulting
Agreement with us.
On
or
about August 13, 2007, we entered into a Second Amendment to Management Services
Agreement with Valeska Energy Corp. (“Valeska” and the “Second
Amendment”).
Pursuant
to the Second Amendment, we and Valeska agreed to extend the term of the
Management Services Agreement until September 30, 2008, and to pay Valeska
the
following consideration in connection with agreeing to perform the services
required by the original Management Services Agreement, and in consideration
for
allowing Daniel Vesco and William M. Simmons to serve as Directors of the
Company, bringing on personnel to assist the Company with the day to day
operations of the Company, and helping bring the Company current in its filings
(the “Services”):
|
·
|
1,000
shares of the Company’s Series A Preferred Stock;
|
|
·
|
A
monthly fee of $20,000 per month during the extended term of the
Second
Amendment, plus reasonable and actual costs incurred by Valeska (or
individuals or designees brought on by Valeska, including lodging,
car
rental and telephone expenses therewith) in connection with such
Services;
|
|
·
|
10,000,000
restricted shares of the Company’s common stock; and
|
|
·
|
60,000,000
options to purchase shares of the Company’s common stock, which shall have
a cashless exercise provision, shall be valid for a period of three
years
from their grant date, which had an exercise price of $0.02 per share,
which was greater than 110% of the trading price of the Company’s common
stock on the Pinksheets on the day of such
grant.
|
In
March
2006, our former Executive Chairman and Director, Frank Jacobs subscribed for
7,500,000 shares of our common stock at $0.04 per share, for aggregate
consideration of $300,000, which funds were immediately used by us in connection
with the Closing of the Kilrush Property (described below).
On
March 28, 2006, Texaurus closed the
purchase of certain interests from Structured Capital in exchange
for a) two million five hundred thousand dollars ($2,500,000) and b)
the issuance of 37,500,000 shares of our common stock at $0.04 per
share.
In
March
2006, the Company issued 1,062,500 warrants to purchase 1,062,500 shares at
$0.04 cents per share and expiring in five years. The warrants were
issued to Energy Capital Solutions in consideration for raising capital for
the
Company. In addition, up to 10,625,000 warrants to purchase Texhoma
common stock at $0.04 per share, expiring in five years, as well as 961 warrants
at $0.001 per share to purchase common shares of Texaurus Energy, Inc., a wholly
owned subsidiary of Texhoma, at any time following Texhoma’s repayment of all
obligations were issued to Laurus Master Fund Ltd.
On
April
10, 2006, Texhoma Energy, Inc. (the "Company") entered into a Debt Conversion
Agreement with Lucayan Oil and Gas Investments, Ltd., a Bahamas corporation,
formerly Devon Energy Thai Holdings, Ltd. ("LOGI"). The Company and
LOGI agreed to convert $160,000 of the $895,000 which LOGI was owed into an
aggregate of 4,000,000 shares (or one (1) share for each $0.04 of debt
converted) of newly issued shares of the Company's restricted common stock.
The
Director and 50% owner of LOGI is Max Maxwell, was a Director of the Company
from April 10, 2006 until May 1, 2007 and President of the Company
from April 12, 2006 until May 1, 2007 and Chief Executive Officer of the Company
from June 5, 2006 until May 1, 2007.
On
May
15, 2006, Lucayan Oil and Gas Investments, Ltd. ("LOGI") provided the Company
notice of its desire to convert its $735,000 Promissory Note into 18,375,000
shares of the Company's common stock. The Company's Board of Directors approved
such issuance on May 18, 2006.
In
June
2006, the Company accepted subscriptions for 3,175,000 shares of its common
stock at $0.08 share for $254,000 in cash. The Company also granted
warrants to purchase 3,175,000 shares at $0.15 per share expiring in one year
and all warrants have since expired.
In
June
2006, the Company accepted subscriptions for 1,000,000 shares of our common
stock at $0.08 per share for $80,000 in cash and the Company also granted
warrants to purchase 1,000,000 shares with an exercise price of $0.15 per
share expiring in one year. Of which all warrants have since
expired.
In
conjunction with the acquisition of three of the Sunray properties, we issued
375,000 shares of common stock and granted warrants to purchase 375,000 shares
at an exercise price of $0.15 per share expiring in one year, these warrants
have since expired.
In
July
2006 the Company accepted subscriptions for 1,000,000 shares of our common
stock
at $0.08 per share for $80,000 in cash and the Company also granted warrants
to
purchase 1,000,000 shares with an exercise price of $0.15 per share
expiring in one year and as of September 30, 2007 these warrants have
expired.
In
September, 2006 the Company accepted subscriptions for 625,000 shares of our
common stock at $0.08 per share for $50,000 and the Company also granted
warrants to purchase 625,000 shares with an exercise price of $0.15 per
share expiring in one year. These warrants have expired as of
September 30, 2007.
On
September 19, 2006, Mr. Brian Alexander decided not to seek re-election as
a
director of the Company and as a result, In connection with monies we owed
Mr.
Alexander in director and consulting fees, 300,000 shares of restricted common
stock were issued to Mr. Alexander in lieu of cash.
4. STOCK
OPTIONS
On
June
1, 2006, the Company's Board of Directors approved the grant of an aggregate
of
10,000,000 options to the Company's then officers, Directors and employees,
pursuant to the Company's 2006 Stock Incentive Plan (the "Plan"). All of the
options were at an exercise price of $0.13 per share, which was equal to the
average of the highest ($0.125) and lowest ($0.111) quoted selling prices of
the
Company's common stock on June 1, 2006, multiplied by 110%. The options were
granted to the following individuals in the following amounts:
|
o
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Max
Maxwell, our former president and Director was granted 750,000 qualified
options and 3,250,000 non-qualified options (for 4,000,000 total
options),
which options were to vest at the rate of 500,000 options every three
months, with the qualified options to vest first, in consideration
for
services to be rendered to the Company as the Company's president
and
Director. The options were to expire if unexercised on June 1, 2009,
or at
the expiration of three months from the date of the termination of
his
employment with the Company. All of Mr. Maxwell’s options have
since expired unexercised;
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|
o
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Frank
Jacobs, our former Director was granted 4,000,000 non-qualified options,
which options were to vest at the rate of 500,000 options every three
months, in consideration for services to be rendered to the Company
as the
Company's Director. The options were to expire if unexercised on
June 1,
2009, or at the expiration of three months from the date of the
termination of his employment with the Company. Mr. Jacobs
resigned from the Company effective June 14, 2007, and as such all
2,000,000 of his vested options expired unexercised on September
14,
2007;
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|
o
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Brian
Alexander, our former Chief Financial Officer and Director was granted
1,000,000 non-qualified options, which options vested upon Mr. Alexander's
execution of a deed of release and settlement between Mr. Alexander
and
the Company in connection with his resignation from his positions
as the
Company's Chief Financial Officer and Director. The options expired
unexercised on July 1, 2007; and
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o
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Mr.
Terje Reiersen then working as a consultant to the Company was granted
1,000,000 non-qualified options, which options were to vest at the
rate of
250,000 options every three months, in consideration for consulting
services to be rendered to the Company in connection with corporate
advice
in relation to a secondary listing amongst other things. The options
were
to expire if unexercised on June 1, 2009, or at the expiration of
three
months from the date of the termination of his employment with the
Company. All of Mr. Reiersen’s options have since expired
unexercised.
|
Additionally,
on June 1, 2006, the
Board of Directors approved the issuance of 2,000,000 options to another
consultant to the Company in consideration for investor relations services
rendered to the Company. The options granted to the consultant were not granted
pursuant to the Plan. The options have an exercise price of $0.13 per share,
vest at a rate of 250,000 options every three months and expire if unexercised
on June 1, 2009.
The
following is a summary of the option activity during the years ended September
30, 2007 and 2006:
|
|
Number
|
|
|
Average
|
|
|
|
Of
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
|
|
|
|
|
|
Outstanding
at October 1, 2005
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
12,000,000
|
|
|
$
|
0.13
|
|
Balance
at September 30, 2006
|
|
|
12,000,000
|
|
|
$
|
0.13
|
|
Expired
|
|
|
10,000,000
|
|
|
$
|
0.13
|
|
Granted
|
|
|
60,000,000
|
|
|
$
|
0.02
|
|
Balance
at September 30, 2007
|
|
|
62,000,000
|
|
|
$
|
0.0235
|
|
Compensation
costs associated with the issuance of options to purchase shares of common
stock
to employees, directors or consultants is measured at fair value at the date
of
issuance based upon the options vested and expensed during the current
period.
As
of
September 30, 2007, 61,250,000 of the options were vested. During the year
10,000,000 of options issued to former employees and associates expired and
60,000,000 new options were issued to Valeska Energy Corp. The trading price
of
our stock was $0.01375 per share at September 30, 2007 and the Black-Scholes
option model with the following assumptions: weighted average
risk-free interest rate of 4.25%, estimated volatility of 182%, weighted-average
expected life of 1.667 years and no expected dividend yield, resulted in a
fair
value per option of $0.015. As such we increased the accrual for
option expense by $811,000 in our current financial statements.
As
of September 30, 2006, 2,500,000 of options were vested and based on
our knowledge at that date, we applied a forfeiture rate of 90% to
the vested options. $12,964 of option expense was accrued as of
September 30, 2006. The trading price of our stock was $0.09 per share on
September 30, 2006. The Black-Scholes option model with the following
assumptions: weighted average risk-free interest rate of 4.25%,
estimated volatility of 127%, weighted-average expected life of two years and
no
expected dividend yield, resulted in a fair value per option of
$0.0518.
5. ACQUISITIONS
On
or
about December 10, 2005, the Company entered into a 6% participation agreement
with the "Clovelly Joint Venture.” On February 2, 2006, we executed a
Sale and Purchase Agreement (the “Clovelly SPA”) with Sterling Grant Capital,
Inc. pursuant to which we acquired a further 5% (five percent) working interest
in the Clovelly South prospect located in Lafourche Parish,
Louisiana. We funded Clovelly SPA through a Joint Operating
Agreement, the issuance to Sterling Grant of 2,000,000 shares of Company common
stock and payment of $15,000.
On March 15, 2006, Texhoma’s
wholly-owned subsidiary, Texaurus Energy, Inc., which was
formed in March 2006
as a Delaware corporation ("Texaurus"), entered into a
Sales and Purchase Agreement with Structured Capital
Corp., a Texas corporation to purchase certain oil and gas leases in Vermillion
Parish, Louisiana, which represent a 10%
working interest (7.3% net revenue interest) in such leases. The
agreed purchase price of the Little White Lake Property was a) two million
five
hundred thousand dollars ($2,500,000) and b) the issuance of 37,500,000 shares
of our common stock. This purchase had an effective date of April 1,
2006.
On
March 28, 2006, with an effective
date of January 1, 2006, Texaurus closed a Sales &
Purchase Agreement to purchase certain interests from Kilrush
Petroleum, Inc. in Allen Parish, Louisiana and Calcasieu Parish,
Louisiana, for
aggregate consideration of $5,225,000. Texaurus
paid the $5,225,000 purchase price with proceeds received from its sale of
the
Secured Term Note with Laurus Master Fund, Ltd. (“Laurus”).
On
March
28, 2006 Texaurus entered into a Securities Purchase Agreement and a
Registration Rights Agreement, issued a Common Stock Purchase Warrant;
entered into a Master Security Agreement with Laurus; and sold Laurus a
Secured Term Note in the amount of $8,500,000 as well as
various other agreements. Additionally, in connection with the
closing, we issued Laurus Common Stock Purchase Warrants to purchase up to
10,625,000 shares of Texhoma common stock and up to 49% of Texaurus’ common
stock.
In
March
2006, the Company issued 1,062,500 warrants to purchase 1,062,500 shares at
$0.04 cents per share and expiring in five years. The warrants were
issued to Energy Capital Solutions for raising capital for the
Company.
A
Letter
of Intent was executed by Texhoma on April 28, 2006, agreeing to participate
in
a 25% working interest in the exploration of the Bayou Choctaw oil and gas
project, located in Iberville Parish, Louisiana. In July 2006, Texhoma
executed a new Letter of Intent increasing its agreement of participation to
41.667% in the project. Texhoma identified that the exposure
was in excess of its corporate guidelines and assigned its right to the interest
to Morgan Creek Energy Corp. in exchange for $250,000 and 200,000 shares of
Morgan Creek Energy.
On
May
31, 2006, Texhoma entered into six (6) participation agreements to purchase
various oil and gas leases from Sunray Operating Company LLC (“Sunray”). In June
and August 2006, Texhoma closed the
purchase
of three (3) of the participation agreements, entering into Assignments and
Bill
of Sales for purchase from Sunray the following Leases:
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Leases
covering approximately 196 acres of land in Brazoria County, Texas.
In the
purchase, Texhoma acquired an undivided 37.5% interest, subject to
existing overriding royalty interests equal to 25% of 8/8.
Additionally, Sunray is entitled to a five-eighth of eight-eighths
(62.5%
of 8/8) working interest, proportionally reduced at
payout.
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Leases
covering approximately 20 acres of land in Brazoria County, Texas.
In the
purchase, Texhoma acquired an undivided 35% interest in the leases,
subject to existing overriding royalty interests equal to 25% of
8/8.
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·
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Leases
covering approximately 280 acres of land in Brazoria County, Texas.
In the
purchase, Texhoma acquired an undivided 72.5% interest in the leases,
subject to existing overriding royalty interests equal to 28% of
8/8.
Texhoma simultaneously sold a 42.5% interest leaving a 30%
interest.
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|
·
|
Texhoma
declined to participate in the purchase of the leases covering
approximately 80 acres in Brazoria County. In September 2006, this
well
was a dry hole and participation in subsequent wells was
declined. However, Texhoma continues to hold a 12.5% back in
Working Interest.
|
|
·
|
Two
leases for another 160 acre site and a 60 acre site which were
subsequently declined by Texhoma, retaining a 12.5% back in Working
Interest.
|
In
conjunction with the acquisition of three of the Sunray properties, we issued
375,000 shares of common stock and granted warrants to purchase 375,000 shares
of common stock at an exercise price of $0.15 per share expiring in one
year. Subsequent to the acquisition of the Sunray properties, we
executed an agreement to sell a percentage of our working interest in the
properties to Matrixx, thereby reducing our cash investment and liability for
future cash calls. Additionally, we agreed to pay Sunray $113,161 in
cash, of which $50,624 remained outstanding as of December 31,
2007.
In
September 2006, drilling on the properties acquired in the Sunray agreement
proved to be unsuccessful and the investment was retired.
6.
RELATED PARTIES
On
December 7, 2004, the Company borrowed $50,000 from a related party, MFS
Technology. The loan is evidenced by a convertible promissory note, see
Note 7 for additional information.
On
or
about December 10, 2005, the Company entered into a 6% participation agreement
with the "Clovelly Joint Venture," of which ORX Resources, Inc. is the Operator.
Our former President and Director Max Maxwell served as Vice President of the
Operator at the time we entered into the participation agreement. On
February 14, 2006 the Company increased its working interest to 11% through
the
purchase of a further 5% working interest in this property from Sterling
Grant. We funded this additional interest through a Joint Operating
Agreement, issuance to Sterling Grant of 2,000,000 shares of Texhoma common
stock at $0.04 per share and payment of $15,000.
On March 24,
2006, Mr. Jacobs, the Company’s former Chief Executive Officer, subscribed for
7,500,000 shares of the Company's common stock at $0.04 per share,
for an aggregate consideration of $300,000, which funds were immediately used
by
the Company as a portion of the consideration
paid by the Company for the purchase of certain oil and gas interests from
Kilrush Petroleum, Inc., located in Allen
Parish, Louisiana and Calcasieu Parish, Louisiana.
On
April
10, 2006, Texhoma entered into a $735,000 Debt Conversion Agreement with Lucayan
Oil and Gas Investments, Ltd., a Bahamas corporation ("LOGI"). Texhoma owed
$895,000 to LOGI as of the date of the Debt Conversion
Agreement in connection with money advanced to
the Company in March 2005 for the fulfillment of a portion of the
cash call commitments for the drilling by Black Swan Thai. Pursuant
to the Debt Conversion Agreement, the Company and LOGI agreed to convert
$160,000 of the $895,000
of which LOGI was owed into an aggregate of 4,000,000
shares (or one
(1) share for each
$0.04 of debt converted) of newly issued shares of the Company’s restricted
common stock. Mr. Max Maxwell, our former President is a 50% owner of
LOGI.
On May 15, 2006,
LOGI provided the Company notice of its desire
to convert its $735,000 Promissory Note, which amount remained from LOGI’s Debt
Conversion Agreement entered into with Texhoma in April 2006, into
18,375,000 shares of the Company's common stock and as a
result of such conversion, which shares were subsequently issued to
LOGI.
On June 1, 2006,
the Company's Board of Directors approved the issuance of an aggregate of
10,000,000 options to the Company's officers, directors
and
employees, pursuant to the Company's
2006 Stock Incentive Plan and an additional 2,000,000 options for a
consultant. All options expire if unexercised on June 1, 2009, or
three (3) months from the date of the termination of employment with the
Company.
All
options were issued at an exercise price of $0.13 per share, which was equal
to
the average of the highest ($0.125) and lowest ($0.111) quoted selling prices
of
the Company’s common stock on June 1, 2006, multiplied by
110%. Options of 4,000,000 were granted to Max Maxwell and Frank
Jacobs, and options of 1,000,000 were granted to Brian Alexander, and Terje
Reiersen. On June 7, 2006, the Board of Directors approved the grant
of an additional 1,000,000 options to Peter Wilson, which amount was later
amended to include 2,000,000 options, which expire if unexercised on June 1,
2009.
On
September 19, 2006, Mr. Brian Alexander decided not to seek re-election as
a
director of the Company due to other business and work
commitments. In connection with monies we owed Mr. Alexander in
director and consulting fees, 300,000 shares of restricted common stock were
issued to Mr. Alexander in lieu of cash. In addition Mr. Alexander’s
vesting was accelerated such that his options were fully vested with a new
expiration date of June 1, 2007. Mr. Alexander and the Company
executed a letter of Mutual Release when Mr. Alexander resigned as an officer
and director of the Company on September 27, 2006. Mr.
Alexander did not exercise his option rights and those options expired on June
1, 2007.
In
March
2007, Capersia Pte. Ltd. transferred 10,000,000 of its shares of Texhoma stock
to Pacific Spinner Ltd.
Mr.
Maxwell resigned from the Company on May 1, 2007, did not exercise any of his
option rights and as a result all option grants expired on August 1,
2007. Frank Jacobs resigned on June 14, 2007 and his options expired
unexercised on September 14, 2007.
In
June
2007, Valeska Energy Corp. entered into a management agreement with Texhoma
for
a minimum period of three months. Mr. William Simmons is the
President of Valeska. In exchange for these services, Valeska was
issued 15,200,000 shares of Texhoma’s stock as payment and
retainer. On June 8, 2007, Capersia transferred 1,000,000 shares of
Texhoma stock to Mr. William Simmons and 1,000,000 shares to Valeska Energy,
Corp.
In
July
2007, 500,000 shares were issued to Mr. Ibrahim Nafi Onat in consideration
for
his entry into a consulting agreement with us.
On
or
about August 13, 2007, we entered into a Second Amendment to Management Services
Agreement with Valeska Energy Corp. (“Valeska” and the “Second
Amendment”).
Pursuant
to the Second Amendment, we and Valeska agreed to extend the term of the
Management Services Agreement until September 30, 2008, and to pay Valeska
the
following consideration in connection with agreeing to perform the services
required by the original Management Services Agreement, and in consideration
for
allowing Daniel Vesco and William M. Simmons to serve as Directors of the
Company, bringing on personnel to assist the Company with the day to day
operations of the Company, and helping bring the Company current in its filings
(the “Services”):
|
·
|
1,000
shares of the Company’s Series A Preferred Stock;
|
|
·
|
A
monthly fee of $20,000 per month during the extended term of the
Second
Amendment, plus reasonable and actual costs incurred by Valeska (or
individuals or designees brought on by Valeska, including lodging,
car
rental and telephone expenses therewith) in connection with such
Services;
|
|
·
|
10,000,000
restricted shares of the Company’s common stock; and
|
|
·
|
60,000,000
options to purchase shares of the Company’s common stock, which shall have
a cashless exercise provision, shall be valid for a period of three
years
from their grant date, and had an exercise price of $0.02 per share,
equal
to greater than 110% of the trading price of the Company’s common stock on
the Pinksheets on the day of such
grant.
|
All
of the above transactions may have
been entered into at terms which may not have been available to unrelated
parties.
7. NOTES
PAYABLE AND CONVERTIBLE LOANS
On
December 7, 2004, the Company borrowed $50,000 from a related
party. The loan is evidenced by a convertible promissory
note. The loan bears interest at 5% per annum calculated 6 months
after the advancement of funds. $25,000 was due on June 7, 2005 and
the remaining balance, plus interest was due on December 7, 2005. The
loan has not been repaid, extended or converted. The lender has the option
during the term of the loan, and any extension, to convert the principle and
interest into shares of common stock at a conversion price of $0.30 per
shares.
The
Laurus Master Fund, Ltd (“Laurus”) note accrues interest at the Prime Rate plus
two percent (2.0%) as published in The Wall Street Journal, but shall not at
any
time be less than eight percent (8.0%). Payments of accrued interest
and principal equal eighty (80%) of the Net Revenue paid to Texaurus in respect
of oil, gas and/or other hydrocarbon production in which Texaurus has an
interest and each payment is applied first to accrued interest due and then
to
the principal balance of the note. The note further states that any
unpaid monthly interest becomes payable at the end of the term.
In
conjunction with the purchase of the Little White Lake oil and gas property,
we
executed a short term note payable with Polaris Capital in the amount of
$2,500,000 to be repaid through the funding provided by Laurus. The
note was repaid in April 2006 from the funds received from Laurus.
On
April
10, 2006, Texhoma Energy, Inc. (the "Company") entered into a Debt Conversion
Agreement with Lucayan Oil and Gas Investments, Ltd., a Bahamas corporation,
formerly Devon Energy Thai Holdings, Ltd. ("LOGI"). The Company owed $895,000
to
LOGI as of the date of the Debt Conversion Agreement in connection with money
received by the Company for the drilling in Thailand in March 2005, which debt
was transferred by Fidelio Business, S.A. and Quick Assets and Cash Corp. (Bank
Sal Oppenheim) to LOGI in November 2005. Pursuant to the Debt Conversion
Agreement, the Company and LOGI agreed to convert $160,000 of the $895,000
which
LOGI was owed into an aggregate of 4,000,000 shares (or one (1) share for each
$0.04 of debt converted) of newly issued shares of the Company's restricted
common stock. The Director and 50% owner of LOGI is Max Maxwell, who became
a
Director of the Company on April 10, 2006, President of the Company on April
12,
2006, and Chief Executive Officer of the Company on June 5, 2006, and resigned
as President, Chief Executive Officer and Director on May 1, 2007.
On
April
10, 2006, the Company entered into a convertible note with LOGI evidencing
the
$735,000 of debt which remained outstanding. The convertible note provided
that
LOGI could convert the $735,000 debt into Company common stock at the rate
of
one share of common stock for each $0.04 of outstanding debt. In
May 2006, LOGI converted the $735,000 remaining under the Promissory
Note into 18,375,000 shares of the Company's common stock.
On
June
8, 2006, we entered into a Promissory Note and Security Agreement (the
"Promissory Note"), with Polaris Holdings, Inc., which held 12,500,000 shares
of
our common stock ("Polaris"). Pursuant to the Promissory Note, Polaris gave
us a
$250,000 loan. The Promissory Note was due and payable on August 10, 2006,
with
interest at 12% per annum. As part payment of the note we
exchanged our remaining interest in Buck Snag and 5%
of our interest in Sandy Point to Polaris, in consideration for a
reduction of the note in the amount of $90,000. Since May 2007, the
balance of the note has been repaid. We also gave Polaris
an Option to participate in our Clovelly Field interests in connection with
the
Promissory Note (described below). We agreed pursuant to the Promissory Note
to
repay the amounts owed to Polaris by way of (a) two-thirds of the net proceeds
we receive from any stock sales while the Promissory Note is outstanding, and
(b) one-third of our share of the production income we receive from our oil
and
gas interests in Vermillion Parish, Louisiana, which represents a 10% working
interest (7.3% net revenue interest) in such leases and our oil and gas
interests in the Barnes Creek Field, located in Allen Parish,
Louisiana
and the Edgerly Field located in Calcasieu Parish, Louisiana from Kilrush
Petroleum, Inc., which constitutes a 7.42% working interest (a 5.38% net revenue
interest) in the Barnes Creek gas field, and an 11.76% working interest (8.47%
net revenue interest) in the Edgerly oil field (the "Texaurus
Interests").
On
or
about October 19, 2006, we issued a Promissory Note to Mr. Frank Jacobs, our
then Director, in the amount of $493,643.77, which amount represented funds
advanced to the Company by Mr. Jacobs during the 2006 calendar year and
management fees owed to Mr. Jacobs for his services to the Company during the
2006 calendar year (the “Jacobs' Note”). The Jacobs' Note bears interest at the
rate of 6% per annum until paid, and is payable by the Company at any time
on
demand. The Jacobs' Note may be pre-paid at any time without penalty. Any
amounts not paid on the Jacobs' Note when due shall bear interest at the rate
of
15% per annum.
On
or
about June 5, 2007, we entered into an Agreement with Jacobs Oil & Gas
Limited (“Jacobs”), pursuant to which Jacobs agreed that no interest would be
due from us and/or accrue on the principal or accrued interest to date on his
outstanding Promissory Note for the period of one (1) year from the date of
the
Agreement and that he would not try to collect the principal and/or accrued
interest on such note for a period of one (1) year.
The
Company also entered into a Security Agreement with Mr. Jacobs under which
Agreement the Board of Directors ratified the assignment of 200,000 shares
of
the common stock of Morgan Creek Energy Corp., which shares were held by the
Company, to Mr. Jacobs as security for the money that is owed to Mr. Jacobs
under the Jacobs' Note.
8. NET
LOSS PER SHARE
Restricted
shares and warrants are included in the computation of the weighted average
number of shares outstanding during the periods presented. The net
loss per common share is calculated by dividing the consolidated loss by the
weighted average number of shares outstanding during the
periods. Because we report net losses, the inclusion of options and
warrants in the calculation would be anti-dilutive, and they are excluded from
the computation presented in the financial statements.
9. WARRANTS
The
following is a summary of the warrant activity during the years ended September
30, 2007 and 2006:
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
|
Of
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
|
|
|
|
|
|
|
Outstanding,
October 1, 2005
|
|
-
|
|
|
-
|
|
Granted
|
|
|
11,687,500
|
|
|
$
|
0.04
|
|
Granted
|
|
|
5,175,000
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|
|
$
|
0.15
|
|
Outstanding
at September 30, 2006
|
|
|
16,862,500
|
|
|
$
|
0.074
|
|
Expired
|
|
|
5,175,000
|
|
|
$
|
0.15
|
|
Balance
at September 30, 2007
|
|
|
11,687,500
|
|
|
$
|
0.04
|
|
Costs
attributable to the issuance of share purchase warrants are measured at fair
value at the date of issuance and expensed with a corresponding increase to
additional Paid-in-Capital at the time of issuance. When the warrant
is exercised, and consideration is received, the transaction is recorded as
an
increase in Common Shares and Paid-in-Capital.
During
the year ended September 30, 2007 5,175,000 of warrants granted expired
unexercised. The trading price of our stock was $0.01375 and the
warrants remaining were issued at $0.04 per share. The Black
Scholes
option model with the following assumptions: weighted average
risk-free interest rate of 4.25%, estimated volatility of 182%, weighted-average
expected life of 3.5 years and no expected dividend yield, resulted in a fair
value per warrant of $0.01767. As a result, based upon the Black-Scholes option
pricing model we reported a reduction in warrant expense for the year ended
September 30, 2007 by $858,573.
During
the year ended September 30, 2006, we granted 4,800,000 warrants in conjunction
with subscriptions of our common stock,. Another 375,000 warrants
were granted as part of the consideration given for the Sunray
purchase. Additionally, a total of 11,687,500 warrants were granted
to Laurus and related parties in conjunction with the $8,500,000 funding to
further our oil and gas property acquisitions.
The
trading price of our stock was $0.09 per share on September 30,
2006. Warrants were originally issued at $0.04 and $0.15 per share
with a weighted average price of $0.074 per share. The Black-Scholes
option model with the following assumptions: weighted average
risk-free interest rate of 4.25%, estimated volatility of 127%, weighted-average
expected life of 3.1 years and no expected dividend yield, resulted in a fair
value per warrant of $0.0701.
The
fair
value of the warrants granted and vested during the year, based upon the
Black-Scholes option pricing model was $1,165,211 and as such we reflected
the
expense incurred in our current financial statements.
The
earnings per share presentation reflects only the weighted average loss per
share, because including the warrants when a loss is being reported has an
anti-dilutive effect on earnings (loss) per share calculations.
10.
COMMITMENTS AND CONTINGENCIES
As
discussed in the prior year filings, management wound down operations in
Thailand and Australia related to their Black Swan investment, after
unsuccessful drilling in the Concession. A determination has not been
made as to the financial or legal consequence to Texhoma or its officers or
its
shareholders, for subsequent obligations, if any, to persons or governmental
entities which may arise from doing business or owning or leasing property
in
Thailand and Australia.
11.
SUBSEQUENT EVENTS
On
or about October 30,
2007, we entered into a Cooperation Agreement and Mutual Release with our former
consultant Terje Reiersen (“Reiersen” and the “Reiersen
Release”). Pursuant to the Reiersen Release, Reiersen agreed to
release us, our current and former officers, agents, directors, servants,
attorneys, representatives, successors, employees and assigns from any and
all
rights, obligations, claims, demands and causes of action in contract or tort,
under any federal or state law, whether known or unknown, relating to his
services with the Company or the Company in general for any matter whatsoever
other than in connection with any claims against any former officers or
Directors of the Company, which claims Reiersen assigned to the
Company. In connection with the Reiersen Release, we paid Reiersen
$2,500 and issued Reiersen 250,000 restricted shares of our common
stock.
On
or
about November 2, 2007, we entered into a First Amendment to Securities Purchase
Agreement, Secured Term Note and Registration Rights Agreement with Laurus
(the
“First Amendment”). Pursuant to the First Amendment, Laurus agreed
to:
(a)
|
waive
any default which may have occurred as a result of our failure to
become
current in our filings with the Commission, assuming that we become
current in our filings prior to December 15,
2007;
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(b)
|
amend
the terms of the Laurus Note to provide that a “Change of Control” of
Texaurus under the Note, which requires approval of Laurus, includes
any
change in Directors such that Daniel Vesco and William M. Simmons
are no
longer Directors of Texaurus; and
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(c)
|
amend
the terms of the Registration Rights Agreement with Laurus to provide
that
the date we are required to gain effectiveness of a registration
statement
registering the shares of common stock issuable in connection with
the
exercise of the Laurus Warrant in the Company is amended to no later
than
April 30, 2008, and that the effective date of any additional registration
statements
required
to be filed by us in connection with the Registration Rights Agreement,
shall be thirty (30) days from such filing
date.
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On
or
about November 28, 2007, we entered into a Settlement Agreement and Mutual
Release (the “Agreement”) by and between the Company, Frank A. Jacobs, our
former officer and Director (“Jacobs”), and Jacobs Oil & Gas Limited, a
British Columbia corporation (“JOGL” and collectively with Jacobs, the “Jacobs
Parties”), Clover Capital, a creditor of the Company (“Clover”), Capersia Pte.
Ltd., a Singapore company and a significant stockholder of the Company
(“Capersia”), Peter Wilson, an individual and a former Director of the Company
(“Wilson”), and Sterling Grant Capital, Inc., a British Columbia corporation,
controlled by Mr. Wilson (“SGC” and collectively with Clover, Capersia and
Wilson, the “Non-Jacobs Parties,” and with the Jacobs Parties, the “Interested
Parties”). We had various disputes with the Interested Parties
relating to the issuances of and transfers of various shares of our common
stock
and various of the Interested Parties had alleged that we owed them
consideration (the “Disputes”). We entered into the Agreement to
settle the Disputes with the Interested Parties.
In
consideration for the Company agreeing to enter into the Agreement, the Jacobs
Parties agreed to the following terms: the Jacobs Parties would return to the
Company for cancellation 5,000,000 of the 7,500,000 shares purchased by Jacobs
in March 2006 (the “Jacobs Shares”); all debt owed by Texhoma to the Jacobs
Parties, known or unknown, was discharged and forgiven, including the total
outstanding amount of the approximately $500,000 Promissory Note owed to Frank
A. Jacobs by the Company (the “Jacobs Note”); the Company owes Jacobs no rights
to contribution and/or indemnification in connection with Jacobs employment
with
the Company; Jacobs agreed to certify the accuracy and correctness of the
Company’s previously prepared annual and interim financial statements and
periodic reports, relating to the time period of his employment from
approximately January 2005 to June 2007; the Jacobs Parties agreed they have
no
interest in and will not interfere with the issuance of or any subsequent
transfers of shares to or from Lucayan Oil and Gas Investments, Ltd. (the “LOGI
Shares”), a Bahamas corporation; Jacobs agreed to use his best efforts to answer
the Company’s questions and produce documents in the future regarding operations
and financials of the Company; Jacobs agreed that he no longer holds any
exercisable options of the Company; the Voting Agreement entered into between
various parties in June 2007, including Jacobs, remains in full affect and
force
against Jacobs; and Jacobs has no interest in any shares other than the
aforementioned 2,500,000 shares.
Additionally,
in consideration for the Company agreeing to enter into the Agreement, the
Non-Jacobs Parties agreed to the following terms: any and all debts owed by
Texhoma to Clover, which purportedly totaled approximately $60,000, Capersia,
which purportedly totaled $60,000 or any of the Non-Jacobs Parties (including
approximately $20,000 purportedly owed to Wilson) was discharged and forgiven;
the Non-Jacobs Parties agreed that they have no interest in and will not
interfere with the issuance of the LOGI Shares; the Voting Agreement remains
in
full force and effect against Capersia; and in connection with the 30,000,000
shares of Company stock in Capersia’s possession received through Texhoma’s
previous purchase of a 40% interest in Black Swan Petroleum Pty. Ltd. (the
“Capersia Shares”), Capersia will not transfer shares in excess of 2% of
Texhoma’s then outstanding shares in any three (3) month period, until the
second anniversary of the Agreement.
Lastly,
in consideration for the Jacobs Parties and the Non-Jacobs Parties agreeing
to
the terms of the agreement, Texhoma agreed to the following terms: Jacobs will
retain the remaining 2,500,000 shares of Company stock and Capersia will retain
the aforementioned 30,000,000 shares of Company stock free and clear of any
claims to such shares by the Company; and JOGL shall retain all rights to the
200,000 shares of Morgan Creek Energy Corp. (“Morgan Creek”) shares held in
trust by JOGL as collateral for a promissory note issued to JOGL by the Company
(the “Jacobs Note” and “Morgan Creek Shares”), the Company will release all
claims to said shares or any additional shares of Morgan Creek that the Company
may be due as a result of stock splits or share distributions.
Further,
pursuant to the Agreement, the Interested Parties agreed to release the Company
from any and all rights, obligations, claims, demands and causes of
action, known or unknown, asserted or unasserted relating to the Disputes or
the
Company or its current or former Directors, and the Company agreed to release
the Jacobs Parties and the Non-Jacobs Parties from any and all rights,
obligations, claims, demands, and causes of action arising from or relating
to
the Capersia Shares, Jacobs’ employment with the Company, the Jacobs Note, the
Jacobs Shares, the Morgan Creek shares, and the LOGI Shares.
As
a
result of the Agreement, the Company was able to settle approximately $640,000
in debt which it purportedly owed to the various Interested Parties and to
settle any and all other claims which such parties, in return for the
consideration discussed above, which mainly consisted of assigning the rights
to
the
200,000
shares of Morgan Creek Energy Corp. stock to Frank A. Jacobs, which shares
had
an approximate value of $92,000 based on the trading price of Morgan Creek
Energy Corp.’s common stock on the date of the Agreement of
$0.46.
On
or
about November 28, 2007, we entered into a Subscription Agreement with Pagest
Services SA, a Swiss Company, pursuant to which we agreed to sell two units
consisting of $125,000 in Convertible Promissory Notes with a conversion price
of $0.0125 per share, convertible at the option of Purchaser, into the Company’s
common stock, and Class A and Class B Warrants to purchase 5,000,000 shares
of
common stock each, with an exercise price of $0.02 and $0.03 per share,
respectively, exercisable for a period of two years from the date of the
Subscription Agreement (the “Units”). One Unit was sold immediately
to the Purchaser, and one Unit was sold to Purchaser shortly after December
15,
2007. The Convertible Promissory Notes bear interest at the rate of
2% per annum, until paid in full, which amount will increase to 15% per annum,
upon the occurrence of an Event of Default (as defined in the Convertible
Promissory Notes). The Convertible Promissory Notes are due on the
first anniversary of the date they are sold, with the first $125,000 in
Convertible Promissory Notes being due on November 28, 2008 and the second
due
on December 19, 2008, unless converted into shares of our common
stock. In the event that our common stock trades on the market or
exchange on which it then trades, at a trading price of more than $0.02 per
share, for any 10 day trading period, the Convertible Promissory Note will
automatically convert into shares of our common stock at the rate of one share
for each $0.0125 owed to the subscriber. We also agreed to provide
the subscriber piggy-back subscription rights in connection with the sale of
the
Units.
12.
GOING CONCERN ISSUES
We
cannot
provide any assurances that the Company will be able to secure sufficient funds
to satisfy the cash requirements for the next 12 months. The inability to secure
additional funds would have a material adverse effect on the
Company.
These
financial statements are presented on the basis that the Company will continue
as a going concern. Other than the previously disclosed
impairments, no adjustments have been made to these financial statements to
give
effect to valuation adjustments that may be necessary in the event the Company
is not able to continue as a going concern. The effect of those
adjustments, if any, could be substantial.
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America which
contemplate continuation of the Company as a going concern. The
Company incurred net losses from operations of $2,188,000 for the current fiscal
year and has incurred $15,005,000 in cumulative losses. Further, the
Company has inadequate working capital to maintain or develop its operations,
and is dependent upon funds from its stockholders and third party
financing.
These
factors raise substantial doubt about the ability of the Company to continue
as
a going concern. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties. There is no assurance that the Company will receive
the necessary loans required to funds its exploration plans.
*
* * * * * * *
SUPPLEMENTAL
OIL AND GAS INFORMATION (UNAUDITED)
The
following supplemental information regarding the oil and gas activities of
Texhoma Energy, Inc. is presented pursuant to the disclosure requirements
promulgated by the SEC and Statement of Financial Standards (“SFAS”) No. 69,
Disclosures About Oil and Gas Producing Activities.
The
following estimates of reserve quantities and related standardized measure
of
discounted net cash flows are estimates only, and are not intended to reflect
realizable values or fair market values of the Texhoma’s reserves. Texhoma
emphasizes that reserve estimates are inherently imprecise and that estimates
of
new discoveries are more imprecise than producing oil and gas properties.
Additionally, the price of oil has been very volatile and downward changes
in
prices can significantly affect quantities that are economically recoverable.
Accordingly, these estimates are expected to change as future information
becomes available and these changes may be significant.
Proved
reserves are estimated reserves of crude oil and natural gas that geological
and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under
existing
economic and operating conditions. Proved developed reserves are those expected
to be recovered through existing wells, equipment and operating
methods.
The
standardized measure of discounted future net cash flows is computed by applying
year-end prices of oil and gas (with consideration of price changes only to
the
extent provided by contractual arrangements) to the estimated future production
of proved oil and gas reserves, less estimated future expenditures (based on
a
year-end costs) to be incurred in developing and producing the proved reserves,
less estimated future income tax expenses. The estimated future net cash flows
are then discounted using a rate of 10% per year to reflect the estimated timing
of the future cash flows.
Capitalized
Costs Related to Oil and Gas Activities
Aggregate
capitalized costs at September 30, 2007 relating to Texhoma's crude oil and
natural gas producing activities, including asset retirement costs and related
accumulated DD&A are shown below:
Unproved
properties
|
|
$
|
-
|
|
Proved
properties
|
|
|
9,571,925
|
|
Less
accumulated DD&A and impairment reserve
|
|
|
5,015,620
|
|
|
|
|
|
|
Net
capitalized costs
|
|
$
|
4,556,305
|
|
Costs
Incurred in Oil and Gas Activities
Costs
incurred in connection with Texhoma's crude oil and natural gas acquisition,
exploration and development activities are shown below:
September
30, 2007
|
|
|
|
|
|
|
|
Property
acquisition
|
|
|
|
Unproved
|
|
$
|
-
|
|
Proved
|
|
|
253,531
|
|
Exploration
|
|
|
-
|
|
Development
|
|
|
-
|
|
|
|
|
|
|
Total
costs incurred
|
|
$
|
253,531
|
|
September
30, 2006
|
|
|
|
|
|
|
|
Property
acquisition
|
|
|
|
Unproved
|
|
$
|
-
|
|
Proved
|
|
|
9,318,395
|
|
Exploration
|
|
|
916,000
|
|
Development
|
|
|
-
|
|
|
|
|
|
|
Total
costs incurred
|
|
$
|
10,234,395
|
|
Results
of Operations for Producing Activities
The
following schedule includes only the revenues from the production and sale
of
gas, oil, condensate and Natural Gas Liquids (“NGLs”). The income tax expense is
calculated by applying the current statutory tax rates to the revenues after
deducting costs, which include Depletion, Depreciation & Amortization
(“DD&A”) allowances, after giving effect to permanent differences. Due to
significant net operating loss carryforwards related to producing activities,
income taxes have not been provided at September 30, 2007 and 2006. The results
of operations exclude general office overhead and interest expense attributable
to oil and gas activities.
|
|
|
2007
|
|
|
|
2006
|
|
Net
revenue from production
|
|
$
|
1,757,647
|
|
|
$
|
2,258,425
|
|
|
|
|
|
|
|
|
|
|
Production
costs
|
|
|
444,742
|
|
|
|
1,321,119
|
|
DD&A
|
|
|
1,031,851
|
|
|
|
1,301,574
|
|
Impairment
reserve
|
|
|
-
|
|
|
|
2,682,194
|
|
|
|
|
|
|
|
|
|
|
Total
costs
|
|
|
1,476,593
|
|
|
|
5,304,887
|
|
|
|
|
|
|
|
|
|
|
Gain
(Loss) before income tax
|
|
|
281,054
|
|
|
|
(3,046,462
|
)
|
|
|
|
|
|
|
|
|
|
DD&A
rate per Barrel of Oil Equivalency “BOE”
|
|
|
7.23
|
|
|
|
4.18
|
|
|
|
|
|
|
|
|
|
|
DD&A
and impairment rate per BOE
|
|
|
7.23
|
|
|
|
12.79
|
|
Proved
Reserves
The
following reserve schedule summarizes Texhoma's net ownership interests in
estimated quantities of proved oil reserves and changes in proved reserves,
all
of which are located in the continental United States. Reserve estimates for
crude oil contained below were prepared by RA Lenser & Associates, Inc.,
independent petroleum engineers.
Proved
reserves:
|
|
Equivalent
bbls
|
|
Balance
- September 30, 2006
|
|
|
283,808
|
|
Revisions
of previous estimates
|
|
|
(140,990
|
)
|
Purchases
of minerals in place
|
|
|
-
|
|
Extensions,
discoveries and other additions
|
|
|
-
|
|
Production
|
|
|
(29,936
|
)
|
|
|
|
|
|
Balance,
September 30, 2007
|
|
|
112,882
|
|
Standardized
Measure of Discounted Future Net Cash Flows
The
following table presents the standardized measure of future net cash flows
from
proved oil reserves in accordance with SFAS No. 69. All components of the
standardized measure are from proved reserves, all of which are located within
the continent of the United States. As prescribed by this statement, the amounts
shown are based on prices and costs at September 30, 2006, and assume
continuation of existing economic conditions. Future income taxes are based
on
year-end statutory rates, adjusted for tax credits and carryforwards. A discount
factor of 10 percent was used to reflect the timing of future net cash flows.
Extensive judgments are involved in estimating the timing of production and
the
costs that will be incurred through the remaining lives of the fields.
Accordingly, the estimates of future net revenues from proved reserves and
the
present value thereof may not be materially correct when judged against actual
subsequent results. Further, since prices and costs do not remain static, and
no
price or cost changes have been considered, and future production and
development costs are estimated to be incurred in developing and producing
the
estimated proved oil reserves, the results are not necessarily indicative of
the
fair market value of estimate proved reserves, and the results may not be
comparable to estimates by other oil producers.
Future
cash inflows
|
|
$
|
7,666,217
|
|
Future
production costs
|
|
|
(1,231,649
|
)
|
Future
development costs
|
|
|
(33,358
|
)
|
Future
income tax expenses
|
|
|
(-
|
)
|
|
|
|
|
|
Future
net cash flows
|
|
|
6,401,210
|
|
10%
annual discount for estimated timing of cash flows
|
|
|
1,781,386
|
|
|
|
|
|
|
Standardized
measure of discounted future cash flows
|
|
$
|
4,619,824
|
|
The
standardized measure of discounted future net cash flows as of September 30,
2006 was calculated using $81.77 per barrel of oil and $6.87 per thousand cubic
feet (“mcf”) of gas.
Sources
of Changes in Discounted Future Net Cash Flows
Principal
changes in the aggregate standardized measure of discounted future net cash
flows attributable to Texhoma's proved crude oil reserves, as required by SFAS
No. 69, at September 30, 2007 and 2006 are set forth in the table
below.
Standardized
measure of discounted future net cash flows
|
|
|
|
September
30, 2006
|
|
$
|
8,685,000
|
|
Purchases
of minerals in place
|
|
|
245,000
|
|
Changes
in estimated future development costs
|
|
|
(509,000
|
)
|
Sales
of oil and gas, net of production
|
|
|
(1,313,000
|
)
|
Revisions
of previous quantity estimates
|
|
|
(1,287,000
|
)
|
Accretion
of discount, other
|
|
|
(1,200,000
|
)
|
Standardized
measure of discounted future net cash flows
|
|
|
|
|
September
30, 2007
|
|
$
|
4,621,000
|
|
*
* * * *
* * * *